The Globe and Mail – March 30, 2016

Via/http://www.theglobeandmail.com/

1. Down payment – Even with 100 per cent equity in your home, you will need to come up with the cash to buy the property outright or for a down payment of at least 20 per cent to avoid paying for mortgage default insurance.

2. Cash flow – Will the rental cash flow be sufficient to cover the monthly and annual condo costs? If not, you’ll need to be prepared to cover the costs from your personal budget. Remember to factor in potential vacancy periods.

And it’s not just mortgage payments that take a chunk out of your budget; there are ongoing maintenance, strata fees and property taxes, not to mention real estate, legal fees and other costs to consider.

3. Hassle factor – Are you ready to be a landlord? Late night phone calls to unplug the sink, complaints from unhappy neighbours, damage from careless renters. If you’d rather hire a professional, don’t forget to include the cost of a property manager in your cash-flow projections.

4. Interest rates – Today’s low cost of borrowing is a real boon to real estate investment, but be sure that you can afford a higher mortgage payment if rates increase at mortgage-renewal time.

5. Diversification – How heavily weighted will you be in real estate if you buy a condo? It’s prudent to have assets in a mix of real estate, cash, stocks, bonds and mutual fund investments so your overall net worth isn’t overly dependent on the ups and downs of one asset class. Target no more than 60 to 65 per cent in real estate, including your principal residence.

6. Taxes – You can only claim the principal residence capital gains exemption on one property. By owning two properties at the same time, there may be tax-reporting requirements and taxable capital gains (see the CRA website for more).

Having a clear goal and game plan for your future housing makes a lot of sense. Just be sure that you are making the real estate decision in the context of your overall financial plan and an honest assessment of how you want to spend your time and energy.

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